A sudden manifestation orperception of the essentialnature or meaning of something

Insight based experiencesresult in a…

Is not always better

but, Is always different

Financial Planning

4 Reasons Why Plan ForThe Future

4 Sources of Income

•SSA

•Pension

•Own House

•Savings

Quick Monthly CalcWe Need $6,000- SSA $1,500- Pension $2,500Still Need $2,000

Our savings will have to supplement the still need amount, do we have enough savings?

4 Reasons•LiquidReserves

•FixedInvestments

Protection

•Variable Investments

1.- Liquid Reserves• A reasonable person must have 3 to 6 months of

income saved somewhere in case one is out of work or facing an emergency/opportunity for:

• Essential expenses or an opportunity to buysomething cheap, such as:– Rent or Mortgage Payment

– Utilities

– Food

– Transportation

– Clothing

11 Reasons Why People Buy LifeInsurance

1.- Transfer Of Risk to Others (Insurance Companies)2.- Income Continuity3.- Pay Mortgage Or Any Other Debt4.- Funding Education For Their Children5.- Emergency Funds6.- Savings To Pay Estate Taxes7.- Charities8.- Funding Supplemental Retirement Needs9.- Settlement of Business Buy/Sell Agreement10.Compensate For Loss of Business Key Personnel11.Selective Compensation Plan

And You, Have You Covered All Your Bases?

2a.- Protection• Life Insurance:

– Term: Guaranteed for 5, 10, 15, 20, 25, 30 years

– Permanent:

• Whole Life: – Guarantees return, is the best insurance, but, the most

expensive,

– Pays Dividends, but, at very low interest

• Universal:– Guaranteed: expensive but better return than whole life

– Fixed: Good return of investment, but, not guaranteed

– Variable: Better return yet, but, not guaranteed

2b.- Protection• Income Disability Insurance:

– How do you replace income in case of disabilitydue to a tragic event, like a debilitating illness, or a catastrophic accident?

• Long Term Care:

– Sooner or Later we all face two events:

• We will die

• We will grow old and others will have to take care of us

3.- Fixed Investments• Short Term Investments, 3 to 5 Years in Length. We will

get returns, guaranteed, but, very modest• Muni Bonds:

– Private Companies– Governments:

• Cities• Counties• State• Federal

• Bank Accounts:– Checking– Savings– Certificates of Deposit– Money Market Accounts

4a.- Variable Investments• Long Term Investments, Usually More Than 5

Years

• Mutual Funds

• Annuities:

– Fixed: Guaranteed, Modest Return

– Variables: Better Return, However, No Guarantees

– Long Term: Up to 7.25% Guaranteed Return

– Immediate: Excellent if what you seek is a longterm, defined, guaranteed income

4b.- Variable Investments• Individual Retirement Accounts (IRAs): Save

Up To $5,000 Every Year From Income BeforeTaxes.

• You do pay taxes once you start using yourmoney to supplement yourretirement, but, not before 59 ½ yearsold, and no later than your 70 ½ birthdate:– Traditionals

– SEP

– Rollover

– Roth

4c.- Variable Investments

• 401k (Private Companies)

• 503b (Non Profits)

• Investment Grade Insurance Policies

• Stocks

• Residential Real Estate

• Comercial Real Estate

The Miracle of Compound Interest1 $0.01 16 $327.68

2 $0.02 17 $655.36

3 $0.04 18 $1,310.72

4 $0.08 19 $2,621.44

5 $0.16 20 $5,424.88

6 $0.32 21 $10,485.76

7 $0.64 22 $20,971.52

8 $1.28 23 $41,943.04

9 $2.56 24 $83,886.08

10 $5.12 25 $167,772.16

11 $10.24 26 $335,544.32

12 $20.48 27 $671,088.64

13 $40.96 28 $1,342,177.28

14 $81.92 29 $2,684,354.66

15 $163.84 30 $5,368,709.1231 $10,737,418.24

The Rule of 72

72/Interest = # of Years to Doublethe Capital

ó

72/# of Years to = InterestDouble the Capital

A.Less?

B.The Same?

C.More?

In The Future, Will Taxes Be:

$1,000,000 Is Not Forever

• As a general rule, your family will need$1,000,000 to replace your current income of $100,000 a year which is $60,000 after taxesand continue with the same lifestyle youcurrently provide them while you are alive and well.

• In this scenario, it seems like the availablemillion dollars will last forever, or will it? If weaccount for inflation we see that reality isquite different, let us go to the table for a visual aid:

$1,000,000 Is Not ForeverYear Beginning

Capital $60,000 Yearly

Inflation Adjustedto 3% Annually

RemainingCapital

RemainingCapital Invested

to 6% LessTaxes

1 1,000,000 60,000 940,000 996,400

2 996,400 61,800 934,600 990,676

3 990,676 63,654 927,022 982,643

4 982,643 65,564 917,080 972,104

5 972,104 67,531 904,574 958,848

6 958,848 69,556 889,292 942,649

7 942,649 71,643 871,006 923,267

8 923,267 73,792 849,474 900,443

9 900,443 76,006 824,437 873,903

10 873,903 78,286 795,616 843,353

11 843,353 80,635 762,718 808,481

12 808,481 83,054 725,427 768,953

$1,000,000 Is Not ForeverYear Beginning

Capital $60,000 Yearly

Inflation Adjustedto 3% Annually

RemainingCapital

RemainingCapital Investedto 6% Less Taxes

13 768,953 85,546 683,407 724,412

14 724,412 88,112 636,300 674,478

15 674,478 90,755 583,722 618,746

16 618,746 93,478 525,268 556,784

17 556,784 96,282 460,501 488,131

18 488,131 99,171 388,961 412,298

19 412,298 102,146 310,152 328,761

20 328,761 105,210 223,551 236,964

21 236,964 108,367 128,597 136,313

22 136,313 111,618 24,696 26,177

23 26,177 114,966 BROKE!! BROKE!!!

Annual IRA/401k Contribution = $6,000 x 35 yrs = $210,000 Total Contribution

Tax Bracket (income > $50,000) = 33.3%

Tax Savings = $2,000 x 35 years = $70,000 Total Tax Savings

Net Outlay = $4,000 per year

At Age 85 $500,000 Taxes

Paid in Retirement Years

VERSUS

$70,000 Taxes Saved

During Contribution Years

In the first 3 years of retirement, every dollar of taxes saved during 35 years of deductions was paid back. In fact, a person living a normal life expectancy will likely pay over 10 times the taxes on a qualified retirement plan during the retirement years than the taxes saved during the contribution years.

MF p. 237

Why Didn’t Somebody Tell Me“The Rest of The Story”?

$6,000 year @ 7.5% for 35.1 yrs = $ 1,000,000

x 7.5%

75,000

x 33.3%

(-25,000)

= $ 50,000

Tax Bracket

Annual Tax

Net Income

Accumulation TransferWithdrawalContribution

Four Phases of Retirement Planning

TaxFavored

TaxFavored

Taxed Taxed

IRA/401(k)

TaxFavored

Accumulation TransferWithdrawalContribution

Four Phases of Retirement Planning

Taxed Taxed

TaxAfter Tax

FavoredTax

Favored

Non-Qualified Alternative

IRA/401(k)

TaxFavored

TaxFavored

Control Of CapitalThe elements that determine if the investment is

wise and prudent are:

14 15 16

1

4 5

6 7

8 9 10

11 12 13

2 3

Returnof Interest?

What investments passthe test of:

Liquidity?

Safety?

1. Commodities

2. Businesses

3. Limited Societies

4. Ranchs, Farms, Land

5. Speculative Stocks

6. Low Quality Bonds

7. Real Estate Investments

8. High Quality Stocks

9. High Grade Bonds

10. Mutual Funds

11. Certificate of Deposits

12. Investment Grade Insurance

13. Money Market

14. U.S. Treasury Bills

15. Annuities

16. Home Equity

The Paradigm of Risk-Return

Annuities LIFO 5% to 9.3%7%5%

Avg.Net

Investment Grade Insurance Contracts

FIFO orTax Free Avg.

Net

4.0% to 13.75%8.2%7.1%

Mutual Funds Taxed as Earned Avg.

Net

<30> to 42%10%6.7%

3 Categories of Investment That Meet TheLiquidity, Safety And Rate Of Return Test For

Conservative Long Term Investing

TaxationHistorical Rate of Return

20.9% 10.9%

Over the Last 70 Years of Stock Market History You Would Have Experienced

on a 20-Year Investment

20-30% of those years a loss is generally experienced

STOCKS BONDS

Best High of

Worst Low of

Average of 12.9% 7.8%8.3% (Net after Tax)

5.4% 4.7%

If you were close to retirement, which Series would youprefer?

1 +20% +8%2 +21% +8%3 +10% +8%4 - 16% +8%5 +12% +8%6 - 2% +8%7 +22% +8%8 - 6% +8%9 +11% +8%

10 +15% +8%

Starting With $100,000

SERIES 1 TAXABLE: value after 10 years = $215,571

SERIES 2 TAX FAVORED: value after 10 years = $215,892

Año SERIES 1 SERIES 2Taxable Tax Favored

* + ó -

**

A Non Qualified Tax Favored Alternative Private Retirement Plan

Structured like

An Investment Grade Insurance Contract

Used like

Universal Insurance Policy

What is the Secret?IRC (Tax Code)

MF p.291

Investment Grade Universal Life InsuranceStructured and Used like

A Non Qualified *Tax Favored Alternative Retirement Plan

•Tax Code: IRC Section 101, IRC Section 72(e) Rev. Rule 66-322, 1966-2 CB 123, TEFRA Section 266, DEFRA Section 221

Fixed 3% 5.75% 7.5% 13.75%

Variables None <30%> 10.5% 35%

Indexed 1% 1% 8.2% 17%

(Connected to S&P 500)

MF p.334

Samples of 3 Investment Grade Universal Life Insurance

Rate of Return 25-Year History

Required Return toGet the Same

Guaranteed Worst Average Best Accumulation Values

7.44%

10.52%

8.20%

Risk Management

Taxes

Legacy

Cash

Credit

Assets

6 Elements of FinancialPlanning

PLAN YOUR FUTUREI Want To Be Here Tomorrow I am Here Today

Control Of CapitalThe elements that determine if the investment is

wise and prudent are:

“An idea whose time has

come is more powerful

than all the armies of the

world.”- Victor Hugo

Control of Capital